What is passive income? It is income earned from an enterprise and requires little or no ongoing effort involved. But before getting to the phase of “little or no ongoing effort involved”, there is compressed effort of building the enterprise up. It would be a lie to say it is easy but it is possible.
We have been educated through societal system and parents’ advice, “Go to school, get good grades, get a degree, graduate and get a good job.”
My parents used to tell me that. What? Your parents too? Looks like it’s universal!
Now, this system of “Go to school, get good grades, get a degree, graduate and get a good job” is what allows you to earn active income. Meaning, you have to actively participate in order to earn the income.
Everyone is given the same type of resource – time. So the above system is literally exchanging time for money and what do you think happens when you can’t offer anymore of your time? Yes, the income stops. Of course, in today’s economy, loss of job is becoming quite common and this could also be another factor where income is lost.
This method of earning a living is almost like a modern slavery. It is common that most people who have worked for awhile, will start to think of investing. When the decision is to invest in property where commitment is larger, the only way to go…is to stay employed. Why? Simply, you need the job to meet the mortgage commitment.
Don’t get me wrong, having a job doesn’t mean it’s a bad thing. There are many people who truly enjoy their work and find fulfillment in what they are doing. And that’s perfectly fine.
This article is really about the importance of building an alternate source of income without your active participation in the long run, ultimately allowing you to have different choices in life.
There are several ways to build alternate stream of income,
- One of my favorite is investing in the right company by owning shares, where the income is derived from the dividends payout.
Pros : Stable dividend payout, requires continuous monitoring of company performance.
Cons : Risk involved in stock market.
- Affiliate and internet marketing, where you can own a website, market other’s products and earn a commission from every sale.
Pros : Once system is set up, this can be run on auto-pilot, literally earning money while you sleep since the internet is operational 24/7.
Cons : Being able to be top page of every search engine, this requires excellent SEO skills. Everyone can set up a website, only 10 gets to the first page of google.
- Write a book or ebook.
Pros : Your very own book that earns you the rights and even royalty fee for future book sales.
Cons : Well, I can’t really think of any but I can only say, a good book sells for many years! So make sure it’s really good!
- Create online course of your expertise area.
Pros : One course cna reach out to many people at one go, giving you the time leverage.
Cons : Very competitive market. If you are new, you will have to spend considerable amount of time and effort to build your brand in the online course market place.
- Network marketing. A very powerful business model because of the power of reach.
Pros : Very powerful leverage model where marketing effort is done collectively as a group to drive total productivity.
Cons : Importance of assessing the right company, products/services and compensation plan that drives collective effort. Good understanding of the compensation plan is important.
- Invest in a rental property.
Pros : Tenanted property will help in servicing the mortgage.
Cons : Traditionally viewed as an asset, but it comes with a liability – your commitment to pay for mortgage loan. This is a different way of viewing it – you don’t own the property until full bank loan is paid up. If you still have a loan, you are owning a liability. if there is no tenant, there is no ROI (Return on Investment).
- Be a sleeping partner of a business venture.
Pros : Profitable venture enables good returns.
Cons : Requires good assessment of the business venture and often requires very large capital.
So, why is passive income important?
It is really the best economic decision when it is done right. And it is very important to start early. Remember I mentioned about everyone having the same type of resource, which is time?
Well, if you start early, this is where it can free yourself up earlier, thus, earning back your time to do things you really want to do. And just imagine, having that source of passive income and the time, what if there are other investment opportunities that allows you to grow your wealth?
That is the main formula of being able to build more wealth in the long term.
Ever heard of the saying, “The rich gets richer“? The only reason is that they leverage and have their money work hard for them while they have the time to look for more opportunities to expand their wealth further.
So, the only time you can break away from selling your time to a regular 9 to 5 is when you are able to build a good source of passive income equivalent to cover all your living expenses, gain back your time and scale up your journey in building more income.
I said it before and will say it again. This is really the only formula where wealth can be created.
I hope you find this article useful and start to think about the where you can start to build a stream of passive income, and how you can expand your wealth for a better future.